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Monthly Archives: September 2011

When you buy wine at a restaurant in front of clients, or a date, or someone else you need to impress, you’re likely to spend more than you would when with a friend or with a longtime partner. Part of what you’re paying for is demonstrating how much you can pay for things — you’re buying the number next to the name of the wine on the wine list as well as the actual wine. But it seems improbable that the marginal value of spending an extra dollar is equal to one dollar. You could buy a seventy-dollar bottle that’s no better than a thirty-dollar bottle, but it may be worth something other than forty dollars more in impressiveness value. If it’s worth less, then you’re simply miscalculating. If it’s worth more, then you might be willing to pay eighty dollars to get the wine plus the “70” next to the wine’s name. There’s no mechanism, however, for the restaurant to charge you that eighty.

On the other hand, you could imagine a restaurant with the regular wine list and the “enhanced prices” wine list. The wines listed are identical. The EP wine list, however, has numerals representing prices that are twenty dollars higher on it, but the wine actually costs only five dollars more than if you had ordered from the regular wine list. If you want to buy forty impression units (thirty-dollar wine quality plus forty-dollar impression), instead of paying seventy dollars, you only have to pay fifty-five dollars!

And then, of course, once this form of signaling is somewhat established, you can save your dough and impress your clients by countersignaling.